Russia's central bank is introducing measures to stabilize the ruble and markets, the lender said Thursday after Moscow announced a military operation against Ukraine.
After weeks of denying plans to attack neighboring Ukraine, Russian forces fired missiles at several cities in Ukraine and landed troops on its coast on Thursday.
Russia's currency, bonds and stocks all tanked, prompting the central bank to announce its first foreign exchange intervention designed to shore up financial stability since 2014, when Russia annexed Crimea from Ukraine.
The ruble skidded to an all-time low of 89.60 against the dollar and neared a crucial threshold of 100 versus the euro. It was around 70 to the dollar and 81 to the euro before the recent round of geopolitical tensions between Moscow and the West started escalating in October.
"To stabilize the situation on the financial market, the Bank of Russia decided to start interventions on the currency market," the bank said on Thursday. The move helped the ruble to slightly narrow losses.
As the United States warned it may cut off Russia's top banks from dollar transactions should Moscow move its stoops into Ukraine, Russian lenders brought $5 billion in foreign exchange bank notes to the country in December and increased liquidity coverage of their foreign exchange assets.
On Thursday, the central bank increased daily dollar offers under foreign exchange swap operations with banks to $5 billion from $3 billion and sold 874 billion roubles ($10 billion) at a daily repo auction separately, to provide its 300 banks with additional liquidity.
The Russian central bank has also decided to expand the list of securities it accepts as collateral in exchange for liquidity it provides. Sberbank, the country's top bank, said that it was operating as normal so far on Thursday.
Markets are now bracing for the impact of fresh and harsh Western sanctions to punish Moscow for its invasion of Ukraine.
"The sanctions hit is going to be significant, unlike the soft sanctions imposed on Tuesday/Wednesday," said Renaissance Capital.
The other tool the central bank has at hand to ease downside pressure on the ruble is its key interest rate. The bank is expected to continue monetary tightening as it struggles to rein in inflation, which is set to get a boost from the falling ruble.
Riskier commodity-linked currencies like the Australian dollar also tanked as Ukraine said Russia had launched a full-scale invasion.
Safe havens such as the yen and U.S. dollar were in demand amid reports of explosions in the Ukrainian capital of Kyiv and gunfire near the city's main airport.
The euro fell as much as 0.84% to $1.1209, the lowest level since Jan. 31. Against other traditional haven currencies, the euro declined as much as 1.28% to a nearly one-month low of 128.37 yen and as much as 0.84% to 1.0292 Swiss francs, the weakest since May 2015.
The Australian dollar dropped as much as 0.90% to $0.7167 and the New Zealand dollar slid as much as 1.00% to $0.6706.
"The situation certainly looks like it's going to get worse before it gets better, and that means the commodity currencies can weaken," said Joseph Capurso, a strategist at Commonwealth Bank of Australia.
"If things get real bad," the Australian dollar could test $0.70, and if the euro is poised to fall "quite a bit more," he said.
Sterling was relatively more resilient, skidding 0.41% to $1.3490, the lowest since Feb. 15.
The U.S. dollar index, which gauges the greenback against six major peers, rose as much as 0.60% to 96.762 for the first time since Jan. 31.
